TMX says lower trading volume mostly due to avoidance of pot stocks

TORONTO (Reuters) - TMX Group Ltd’s (X.TO) CEO on Thursday brushed off signs that the grip of Canada’s dominant stock exchange operator on overall trading volumes was slipping, saying recent market share losses were mostly due to its rejection of certain listings.

FILE PHOTO - A TMX Group sign, the company that runs the Toronto Stock Exchange (TSX), is seen in Toronto, June 23, 2014. REUTERS/Mark Blinch/File Photo

TMX has shied away from listing marijuana-related companies with U.S. investments or operations, so many of them have turned instead to the smaller Canadian Securities Exchange, or CSE.

TMX is wary of legal liability as more U.S. states legalize the drug while it remains illegal under federal U.S. law, industry participants and analysts say.

July data from industry body IIROC shows the market share in Canada of TMX’s main Toronto Stock Exchange and its junior TSX Venture Exchange slipped to 54.8 percent from 57.5 percent in June. It had 61.9 percent of all trading volume a year earlier.

Meanwhile, CSE’s share rose to 7.9 percent in July from 6.4 percent in June and 2.9 percent a year earlier, the data showed.

“The bulk by far of that is coming from the additional listings on CSE, for the record, most of which would not qualify to be on our venues,” TMX Chief Executive Officer Lou Eccleston said on a call with analysts.

One such company is CannTrust, a medical marijuana producer that has licensed a cannabis-infused single-serve coffee and tea product for U.S. markets and plans to list on CSE next week.

He said U.S.-based Nasdaq and local rival Aequitas, which both began operating Canadian venues in recent years, did not appear to have been a factor, but added that volumes were also hurt by growing traffic on Match Now, a dark pool alternative trading system.

Eccleston said the TMX expected to start a dark pool venue, which allows big players to place and match buy-and-sell orders anonymously to avoid tipping off rivals and moving share prices, in the fourth quarter to address that demand.

Nasdaq’s share of trading volume was 15.7 percent in July, up from 14.9 in June and 14.6 percent a year earlier. Aequitas’ share rose to 6.3 percent from 5.3 percent in the previous month and 6.2 percent a year earlier.

Shares of TMX were up 3.5 percent at C$68.18 in midday trading after it posted higher-than-expected quarterly earnings and revenue late on Wednesday, helped by lower costs.